A new type of insurance is being introduced in the US from next month that will give homeowners protection against negative equity.

Offered by AmTrust Financial Services, Underwater Mortgage Protection is to launch in three US states in December and is to be rolled out on a national basis during next year.

Matthew Kayton, vice president of the real estate insurance group at AmTrust says:"Our product fills a significant gap that was needed in the marketplace. We will be there to help consumers if they end up in a situation where life happens to them and they need to sell, and they might be in a down market."

The recent rise in US house prices has helped lift nearly 5 million home owners out of negative equity, however 21% of all home owners with a mortgage are still in negative equity - where they still owe more on their mortgage than their homes are currently worth, CNBC reports.

With this policy, homeowners can buy insurance to cover a negative equity shortfall on the value of their home in return for a monthly premium of £25 to £31. But this does come with strings attached. When applying, homeowners are required to have at least 10% equity in their homes and will be unable to refinance during the coverage period. If home owners decide to sell their homes and the value of the home is not worth the mortgage amount, UMP will assist home owners in selling the property through its own agents and will then pay any difference to the lender.

Critics in the US are already saying this insurance plays on homeowners' fears and the monthly premium would be better used for paying down the mortgage. House prices would need to fall by more than 10% (or higher value of the equity at the outset) AND the homeowner chose to sell, before this policy provides any benefit.

Perhaps this kind of insurance will soon be mirrored in the UK and become another potential mis-selling scandal.It also indicates the value of the state mortgage indemnity guarantee (Help to Buy 2) for lenders piece of mind - over £360 a year.

So to be able to claim on this insurance you would have already lost your (required) existing equity of 10% or more and would have to use a UMP agent to sell the property.No doubt UMP will make on the selling commission as well as the £366 annual premiums.

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